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Apple's Elusive Corporate Configuration

By Alex Salkever When Apple Computer hired Sebastian Gunningham away from Oracle (ORCL) in the spring of 2002, some analysts thought CEO Steve Jobs had brought him on board to crack the corporate-computing market -- long a dream of Apple execs. Sure enough, a month later, at Apple's 2002 World Wide Developers Forum, Jobs & Co. launched the Xserve, a powerful server aimed squarely at luring corporations and other users of big hardware.

Shortly thereafter, Apple (APPL) began to build a sales team to plumb the corporate market. It seemed primed for battle with the likes of hardware giants Dell (DELL), IBM (IBM), Hewlett-Packard (HPQ), and Sun Microsystems (SUNW).

ROOM AT THE TOP. Two years have gone by, though, and Apple has yet to make serious inroads into the corporate market. Worse, its efforts took a huge hit when Gunningham quit in January to become the CEO of a small Miami-based software outfit. Apple says it remains committed to enterprise computing and is actively seeking a replacement for Gunningham.

That may be, but Gunningham's departure dredges up lingering questions. Can Apple ever escape its desktop perch and march into the data centers of America Inc.? And what does Apple have to show for the past two years of efforts to sell powerful servers to businesses?

The vacuum at the top of the corporate-computing division comes at a bad moment. For the first time in memory, Apple has server products that are extremely competitive on price and top-level performance with anything else on the market. Apple has also started rolling out interesting offerings to win market share in biotech and entertainment.

ANSWERING CRITICS. At the same time, info-tech managers have finally begun to voice optimism and untie their purse strings. But if Apple wants to take advantage of its opportunity, it needs to quickly fill Gunningham's slot -- as well as take steps to reassure potential customers that it's in corporate computing for the long haul.

Businesses have generally eschewed Apple's offerings for a variety of reasons: IT managers viewed Apple's hardware as expensive compared to faster Intel (INTC) boxes. They feared that Apple lacked expertise in top-level technical-support matters. They thought the Apple platform lacked key pieces of corporate-computing software. Worst of all, they felt Apple simply didn't understand the needs of big enterprises. For the most part, they had good reason for these concerns.

Apple has, to some degree, effectively addressed most of these issues over the past two years. While many IT managers still might see Apple's desktop machines as expensive, few would claim its servers aren't fairly -- if not aggressively -- priced. Although key database and enterprise-resource-planning software still doesn't run on Apple servers in their native configuration, Jobs & Co. have made it easy for buyers of Xserves to convert them to other operating-system software that can run those products.

PLEDGE OF ALLEGIANCE. Where Apple truly needs to step up is in the areas of technical support and understanding the needs of big enterprises. While it has a long history of providing customer support for individuals and small businesses, Apple has relatively little experience in the past decade supporting midsize and large corporations, vs. that of its business-computing rivals.

Apple could begin to address this problem by extending hardware-service guarantees on its servers beyond what it has now, which is industry-standard or slightly better. That's not enough to win over skeptics and make them new customers, particularly when you're talking about data-storage hardware and software.

To really win on this battlefield, Apple will somehow have to convince businesses that it intends to stay in the server market. That's key, because most IT managers expect their servers to last for many years, and the fear of losing hardware support and upgrade potential would prove a major setback to Apple's efforts. Such reassurances of eternal loyalty might seem excessive, but cracking the corporate IT market is tough when Apple has to go against brand names with long reputations.

GOOD BEGINNINGS. To their credit, Apple execs have stated that they're mainly targeting server sales efforts at markets where they already have a foothold, such as biotech, entertainment, and academia. That's why Apple is promoting its technologies to link servers together in potent clusters to function as tools for biotech outfits that need to map genes and entertainment concerns that have to render complex images.

Small biz is another area where Apple, with its ease of use, should have better success selling servers. And Jobs & Co. have rightly emphasized the success of its supercomputer cluster at Virginia Tech (see BW Online, 9/10/03, "A Mac-Style Supercomputer"). Should other schools follow suit, that market could deliver a major boost to Apple's server sales.

Apple's efforts in business computing are still relatively young -- it's not uncommon for companies seeking to crack corporate computing to take five years or more before making real inroads. In fact, sales of Apple's servers are growing smartly off a tiny base.

CULTURAL SHIFT. Still, Apple could improve its chances by making the purchase of an Xserve more palatable to potential customers. Ultimately, it needs to think about expanding into different business segments if it wants real staying power in corporate-computing markets. That will require much heavier lifting to convince IT managers outside Apple's fan base, since many remain wary of a company with so little history and reputation in corporate computing.

Apple needs a visible sales boss to energize the troops and close bigger deals. It needs to offer better guarantees to potential customers. And it needs to give corporate IT departments a reason to believe that the Mac folks know big business just like the people at Dell, HP, or IBM.

That's a sizable cultural shift, but a necessary one if Apple hopes to play in the competitive corporate-computing market. Now is the time to move. Salkever is Technology editor for BusinessWeek Online. Follow his Byte of the Apple column, only on BW Online

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